The phases, transformability, microstructure and mechanical properties of ZrO2-Gd2O3 polycrystals containing 1.75-8 mol% Gd2O3 were studied. The samples were prepared by a coprecipitation route followed by sintering at 1400degreesC for 2 hours. The grain size was in the range of 0.1-0.2 mum except for some large grains at high Gd2O3 contents. Only a tetragonal phase was observed between 2-4 mol% Gd2O3 and a cubic phase for compositions containing greater than or equal to9.6 mol% Gd2O3. A peak K-IC of 12 MPa m(1/2) and a strength of 800 MPa were obtained in the 2 mol% Gd2O3 alloy for which the t --> m transformation on the fracture surface was also found to be maximum. Transformation toughening is able to account for most of the toughness of the samples.